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FLK 1 > Business > Flashcards

Business Flashcards

1
Q

How is a partnership formed?

A

Two or more people
Carry on a business in common
With the intention to make profit

No formalities required
If it’s unclear if a partnership has been formed, the sharing of profits is prima facie evidence (agreement to share loss is some evidence but not prima facie)

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2
Q

Actual authority can be granted:

A

Expressly in a partnership agreeement
Expressly from a vote of the partners
Or
Impliedly from partners’ failure to object to past actions

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3
Q

When does a partner have apparent authority?

A

A partner has apparent authority to carry on in the usual way business of the kind is carried on by the partnership unless: they had no actual authority to act AND the 3rd party knew they lacked actual authority or did not know they were dealing with a partner

Carrying on in the usual way of business is objective: would a reasonable 3rd party think a business of this kind would usually do this act?

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4
Q

What needs to be submitted to Registrar of Companies to register LLP?

A

Name of LLP (which must end in LLP or Limited Liability Partnership)
Location and address of registered office
Names and addresses of the members and who will serve as designated members (at least 2 people required as DM)
Details of people with significant control (people who have right to more than 25% of assets, voting rights or other rights of control

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5
Q

What does an LLP need to do to change its name?

A

Deliver a notice of the change to the Registrar of Companies

Change becomes effective when the Registrar issues a certificate of the name change

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6
Q

When must the Registrar of Companies need to be notified of changes to LLP’s membership or designated members?

A

Within 14 days of the change

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7
Q

Who is a person with significant control?

A

Those holding more than 25% of surplus assets on winding up
Those holding more than 25% of rights to vote on matters to be decided on by members of LLP
Those holding the right to appoint or remove the majority of those entitled to take part in management
Or
Someone who otherwise can exercise significant influence or control over a trust or members of a firm that is not a legal person but meets any of the specified conditions in relation to the LLP

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8
Q

What is an unlimited company?

A

One whose members are personally liable for all the debts of the company

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9
Q

What is a company limited by guarantee?

A

Whose shareholders’ liability is limited by amounts they guarantee - typically used for non profits

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10
Q

What is a public limited company?

A

Whose shares may be issued to public generally, can list their shares on stock exchanges
Required to have minimum nominal share capital of £50,000

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11
Q

What does a promoter need to file for a company to be incorporated?

A

Memorandum of association - authenticated/signed agreement of persons wishing to become members of a company upon its formation procured by promoters

along with application for registration which must include:
-proposed name of the company
-location of its registered office
-details about the company’s business
-whether it will be limited by shares or guarantee
-statement of capital and initial shareholdings
—>total number of shares to be taken by subscribers
—>aggregate nominal value of the shares
—>if shares divided into classes, a description of each class
—>the amount that will be paid up but he shareholders and amounts left unpaid for shares
-statement of proposed officers/directors
-details of persons with significant control
-statement of compliance with Companies Act 2006
-the relevant fee

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12
Q

When will the veil of incorporation be lifted or pierced?

A

If the company form is being used to carry out fraud or avoid existing obligations

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13
Q

How many directors must a private company have?

A

At least 1

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14
Q

How many directors must a public company have?

A

At least 2

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15
Q

How quickly does Registrar of Companies need to be notified of new directors or changes to existing directors’ details?

A

14 days

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16
Q

De facto director

A

Acts as a director, claims to be one but has never been appointed

Still treated as a director

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17
Q

Shadow director

A

Influences other directors but doesn’t claim to be one ad hasn’t been appointed as one

Still treated as a director

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18
Q

Executive director

A

Responsible for day to day running of the company, employee of the company

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19
Q

Non executive director

A

Usually consultants
Take on more supervisory role overseeing activity of executive directors

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20
Q

Nominee director

A

Appointed to board to represent interests of a particular stakeholder, usually a shareholder

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21
Q

Director must exercise higher of the care, skill and diligence that would be exercised by reasonably diligent person with:

A

-general knowledge, skill and experience that reasonably may be expected of a person carrying out the duties of a director (objective)
Or
-general knowledge, skill and experience the director in question actually has (subjective)

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22
Q

Director must exercise higher of the care, skill and diligence that would be exercised by reasonably diligent person with:

A

-general knowledge, skill and experience that reasonably may be expected of a person carrying out the duties of a director (objective)
Or
-general knowledge, skill and experience the director in question actually has (subjective)

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23
Q

Corporate tax rate for companies with profits over £250,000

A

25%

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24
Q

Corporation tax rate for profits below £50,000

A

19%

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25
Q

Exempt assets for CGT

A

Wasting chattels (moveable property with life of less than 50 years)
Cash
Shares in an ISA
Gilt/govt bonds
Non-wasting chattels worth less than £6,000

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26
Q

Who needs to agree to admit new members to LLP?

A

All current members (unanimous)

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27
Q

Admin and filing duties of LLP’s designated members:

A

Approve and remove auditors
Submit annual confirmation statements
Sign and file accounts
Comply with stat filing duties

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28
Q

LLPs must notify Reg of Companies of changes in membership or identity of designated members within

A

14 days

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29
Q

What LLP docs must be filed with Companies House?

A

Annual accounts
Annual confirmation statement
Details of appointment and removal of members
Details of changes to members’ details
Change in name or registered office

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30
Q

Clawback provision

A

Any member of LLP has withdrawn property within 2 years of insolvency, proved they knew or had reasonable grounds for knowing LLP couldn’t pay its debt or wouldn’t be able to after withdrawal: member might be ordered to contribute to assets of LLP

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31
Q

When do charges and mortgages need to be registered at CH?

A

Within 21 days of creation

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32
Q

Notice of change of director or officer with CH

A

Filed within 14 days

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33
Q

Ordinary resolution to allot shares filed at CH

A

Within 15 days of approval

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34
Q

Special resolutions filed at CH

A

Within 15 days

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35
Q

CH notified of issuance of new shares

A

Within 1 month

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36
Q

On registered company letterhead

A

Name of company, address, registered bumber, part of the UK they are registered in

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37
Q

Partnership letterhead

A

Name of partnership
Names of partners
Address

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38
Q

Sole trader letterhead

A

Business name
Real name if different
Business address

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39
Q

Individual tax returns due

A

31 January after tax year

Second payment 31 July

any balance owed the 31 Jan after

40
Q

Personal savings allowance

A

£1000 basic
£500 higher rate

Taxed at 0%

41
Q

3 categories of income for tax

A

non-savings income, savings income and dividends income

42
Q

Exempt from CGT

A

Wasting chattels - movable property w life of less than 50 years
Non- wasting assets worth less than £6000

43
Q

Pay CGT on property within

A

60 days of completion

44
Q

Individual Voluntary Arrangement

A

a number of creditors agree to accept a reduced amount of money and payment at a different time

requires approval of 75% of the unsecured debt but if approved becomes binding on all ordinary unsecured creditors

preferential creditors (employees owed pay from last 4 months) and secured creditors only bound if they agree

45
Q

For an IVA, an insolvency practitioner must

A

-have debtor prepare statement of affairs
-apply to bankruptcy court for interim order to prevent creditors from filing for bankruptcy
-prepare report advising on proposal and chance of acceptable one
-call meeting of creditors
-supervise and implement plan

46
Q

Insolvency

A

a person or business is unable to pay their debts

47
Q

Bankruptcy

A

judicial process in which assets of bankrupt debtor are passed to third party (trustee in bankruptcy) who liquidates the assets and uses the money from the liquidation to pay off as many debts as possible

once an application for bankruptcy is made, creditors must stop chasing debtor. debtor will be discharged from most debts after 1 year

48
Q

Who can apply for a bankruptcy order

A
  1. the debtor can apply online
  2. one or more of the debtor’s unsecured creditors owed at least £5,000 can submit a petition
    -application must prove insolvency by showing either debt is immediately payable and no funds to pay or debt payable in future and no reasonable prospect of being able to pay
    -if debtor owes liquidated debt of £5,000 + creditor can make stat demand for payment, if it’s not paid or debtor doesn’t apply to set it aside within 3 weeks, will be deemed insolvent
    for future liability of £5,000+, credit can serve stat demand for proof of ability to pay and if isn’t able to show or apply to set aside, debtor will be deemed insolvent
    if owes judgement debt of £5,000+ and attempt to execute fails, debtor deemed insolvent
  3. supervisor of IVA
49
Q

during bankruptcy proceedings, the bankrupt may not:

A

apply for credit over a prescribed amount
act as a company director
be a partner
trade under another name

50
Q

order the trustee in bankruptcy pays creditors:

A

costs of bankruptcy
preferential debts (includes employee wages 4 months, money owed to HMRC inc VAT, PAYE and NI
ordinary unsecured creditors
postponed creditors (spouse or civil partner)

51
Q

6 insolvency options for LLP or company

A
  1. receivership
  2. restructuring plan (requires approval of 75% unsecured debt)
  3. administration
  4. CVA
  5. moratorium (halt creditor action in order to decide what to implement, appoint an insolvency practitioner)
  6. liquidation
52
Q

Receivership

A

if creditor has taken over a company’s fixed assets, creditor can appoint receiver to take the charged asset and sell it to pay off the obligation

receiver’s duties are only to the creditor

53
Q

Administration

A

procedure which enables the administrator to run, reorganise and/or sell company as going concern

admin acts in interest of creditors as a whole
can go into admin through court hearing or by filing certain papers

only ordered if court satisfied it will achieve a better result for creditors than liquidation

54
Q

Members’ Voluntary Liquidation

A

only available if company is solvent but individuals running it wish to wind it up

liquidation causes assets to be sold to pay debts and company then ceases to exist

55
Q

Creditors’ Voluntary Liquidation

A

started by directors then taken over by creditors
members pass special resolution to start liquidation

56
Q

Compulsory liquidation

A

creditor who can show the company is unable to pay its debts can petition for company to be wound up

liquidator appointed to collect and sell assets

57
Q

Order of debts to be paid in liquidation

A

expenses of winding up
preferential debts (employee wages)
debts secured by floating charges (in order of priority)
unsecured debts
shareholders

(rank and abate equally if not enough at a level)

58
Q

Preference

A

when a debtor does something that intentionally puts a creditor in better position for liquidation than they otherwise would have been

59
Q

Time frame of preference for trustee in bankruptcy to claw back

A

if preference was paid within 6 months of onset of bankruptcy - desired to put them in better position
2 years if connected person

company was unable to pay debts at time or unable as a result

60
Q

Transaction at undervalue time frames to be set aside

A

2 years for company bankruptcy which was either insolvent at the time or made insolvent as a result
-presumption of insolvency if transaction is to a connected person
defence available if done in good faith and reasonable grounds for believing it would benefit company

5 years for individual
-no need to prove insolvency at the time if within 2 years of petition
-insolvency presumed if transaction made at any time in favour of close relative or business associate

61
Q

wrongful trading

A

directors carry on business when they knew or ought to have known that company has no reasonable prospect of avoiding insolvency and failed to take adequate steps to minimise losses

62
Q

fraudulent trading

A

director carries on business with intent to defraud creditors

if established, directors may be liable to make personal contribution to company assets

63
Q

When should a sole trader or partner register with HMRC

A

within 3 months of starting

64
Q

Annual Investment Allowance

A

when taxpayer buys capital asset for their business
allows them to deduct the costs of plant and machinery in accounting period up to £1,000,000 in the 12 months

exceed AIA, Writing Down Allowance in available: deduct fixed percentage of the cost of the asset each year (18% for most, 6% for lifelong)

65
Q

Overlap profits

A

when business’s accounting period doesn’t coincide with tax year, business still taxed on the profits made during the accounting period that ends in the tax year to 5 April, so some first year profits will be taxed twice

dont usually get relief until trade ceases or change account period to end 5 April

66
Q

Personal allowance

A

every tax payer entitled to £12,750 PA but it is tapered by £1 for every £2 over £100,000

67
Q

Marriage allowance

A

enables someone to transfer part of their personal allowance to their spouse if:
married/civil partner
transferring spouse’s income is less than personal allowance
recipient spouse is basic rate taxpayer

transferring spouse reduces their personal allowance by the amount transferred and recipient spouse gets a credit against tax owed of 20% of amount transferred

68
Q

Dividend allowance

A

£1,000 for all taxpayers
a nil rate band

69
Q

Alternatives for sole trader or partner to offset trade losses:

A

set off against total income from current or prior year

carried forward and set off against future profits - trading income not other income

against salary or dividend payments from the company for any year in which they own shares

deducted from trading profits in the tax year the trader ceases trading then carried back to 3 preceding tax years - set off only against profits of the trade, not other income

70
Q

General anti abuse rule

A

allows HMRC to set aside a tax arrangement if it cannot reasonably be regarded as a reasonable course of action

HMRC may make a tax adjustment that is just and reasonable under the circumstances

71
Q

When do corporation tax returns need to be submitted?

A

12 months after the end of their financial accounting period

72
Q

replacement of business asset/rollover relief

A

company entitled to tax relief when it disposes of a capital asset at a profit and uses the profit to buy a replacement asset
gain deferred to when replacement is sold
calculation: acquisition cost of new asset - gain

73
Q

Corp tax options for company that has a loss in a year

A
  • set loss against total profits (before qualifying charitable donations) in the current accounting period if there are any
    -carrying the loss back to set it against total profits in preceding 12 months (only possible after current period offset)
    -carrying loss forward to set it against total profits (after qualifying charitable donations) of later accounting period
74
Q

when a close company makes a loan to a participator, it must pay 33.75% of the loan to HMRC when?

A

within 9 months and 1 day after the end of the accounting period in which the loan is made
payment will be refunded to the company when the loan is repaid or written off
-to the extent it is written off, it is taxed as a dividend distribution to the participator

the payment of the tax isn’t a deductible expense for the company

75
Q

How do companies execute a document?

A

either affixing their seal to the document or the signature of:
2 directors, director and secretary or single director in presence of witness who attests

76
Q

When is duty to the shareholders displaced by a duty to creditors?

A

when a company is insolvent or on the brink of insolvency

77
Q

how can the shareholders remove a director?

A

simple majority vote
but notice to adopt a resolution to remove a director needs to be given 28 days before the hearing and director must be given notice and a right to respond in writing and orally at the meeting

78
Q

Bushell v Faith clause

A

gives a weighted vote to a director who is also a shareholder
- important if shareholders voting to remove a director

79
Q

requirements for a public company’s secretary

A

such as:
previously been a company secretary for 3 years
member of regulated accounting or secretarial body
a barrister or solicitor

80
Q

how many shareholders required to demand general shareholders meeting?

A

5% of paid up capital

81
Q

if shareholders request a meeting, when does it have to be held

A

directors must call it within 21 days and it must be held within 28 days

82
Q

What must be on the notice of a shareholders’ meeting?

A

company name
time, date and place of the meeting
general nature of business to be discussed
statement of right to appoint a proxy
full text of any special resolution

83
Q

how much notice is required for a shareholders meeting?

A

at least 14 clear days in advance plus 2 days for deemed delivery if notice not hand delivered

for annual meeting of a public company, 21 days clear notice

84
Q

when can a meeting be held on shorter notice?

A

if agreed by a majority in number of the shareholders who hold 90% of the shares (95% for non-traded public companies)

85
Q

who can request a poll vote?

A

5 or more shareholders or shareholders with at least 10% of voting rights or 10% of paid up capital

86
Q

how many shareholders to require directors to circulate a written resolution?

A

5%

87
Q

how long until written resolution lapses?

A

28 days from and including day of circulation

88
Q

When do directors have the power to allot additional shares?

A

if company has only 1 class of shares and no restriction removing this power in the articles

in other situations, they have to seek permission from shareholders via ordinary resolution

89
Q

how much time must shareholders be given to accept additional cash shares under pre-emption rights?

A

14 days

90
Q

can a shareholder sell their shares to a third party?

A

governed by articles

in model articles, private companies have an absolute right to refuse to allow a transfer of shares

91
Q

Floating charge is automatically void if

A

If created within 12 months insolvency for no additional consideration AND
company insolvent at time/become insolvent as a result, automatically
If to connected person, 2 years and no need to prove insolvency at time

92
Q

When is a company deemed to be unable to pay its debts?

A

Creditor owed more than £750 served a statutory demand not paid within 21 days

Creditor has obtained a judgement against the company and attempted to execute it but the debt is not fully satisfied

Company is unable to pay debts as they fall due (cash flow test)

Value of assets are less than liabilities (the balance sheet test)
→ the latter two are harder for creditors, no access to books. Used more by directors

93
Q

Who can appoint a director?

A

directors or shareholders

94
Q

substantial property transaction

A

involves directors w personal interest - more than £100,000 or £5,000 and value is more than 10% of company’s assets

95
Q

When do companies have to send copies of their accounts to Companies House?

A

no later than 9 months after end of their relevant accounting reference period

6 months if a public company

FLK 1 (8 decks)

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